How it feels to be mortgage-free

I hit the halfway mark of my mortgage-free marathon a couple of years ago, and I hit the wall at the same time. The journey seemed endless and morale was low.

I wrote a post as a form of self-help and discovered a cache of Monevator readers who cheered me up and along with their inspirational comments.

This intervention from Ermine, in particular, gave me heart:

The good news is it’s on the up from now – the last half of goals like that go quickly, as the initial investment starts to pay returns. As my mortgage dropped, I could pay increasing amounts of what was left, which rocketed in the second half.

The really good news is: he was right.

Thanks to a strong wind from the equity market, and merciless saving, we’ve1 hit the magic number two years early.

I now own as much as I owe and all that remains is to hand over the loot to the bank. No longer will they be able to invite themselves round for a ‘chat’ if I can’t keep the payments up.

A funny thing happened on the way to the bank

When I became effectively free of the mortgage, the weirdest feeling was that I didn’t feel anything at all.

A smile and a hug with Ms Accumulator, a couple of “I’ve done it” emails to close friends.

I tried to mark the occasion. After all the effort, I mounted my own winner’s podium to greet the applause of my super-ego and… *clunk*… nothing… silence.

Is that it?

Am I broken? Sterile? An emotional Sahara?

No. As grief can be delayed, so can gratification. It may have been re-routed by my emotional sat-nav but happiness has arrived, just not in the guise I expected.

Exhilaration sent its apologies along with two quieter stand-ins: soothing satisfaction and renewed determination.

Because the game is far from won. Paying off the mortgage was only the qualifying round. Financial independence is my Olympic Final.

Now I know I can do it. I showed the discipline, stamina, and resolve to hold on during the impossible years. I can face down consumerism and resist the urge to buy a pint of fast-acting pleasure here and a box of cheery moments there.

Better still, I know it’s worth it. I haven’t missed out. Because everyone who’s been there before me and told me it’s one of the best things they’ve ever done – they were right.

The great escape

I feel like Houdini at the moment he gets an arm free. I may still be in the barrel heading over the Niagara but I can feel the chains slipping off and there’s still time.

Financial independence is a bigger challenge than paying off the mortgage. But I don’t think it will be as hard.

Because this time I have self-belief. Because I’m mentally in the right place. Because my value system is calibrated for freedom not fashion. Frugality is my ally, not an ailment. And with the mortgage done I can focus all my firepower on one goal: F.I. – Financial independence.

I can see it and I want it.

Take it steady,

The Accumulator

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I paid off my mortgage about ten years ago. What to do with the cash? Shares? I already invest in them. Pension? Ditto. Cash? Don’t be daft. New car? Don’t need it, like I don’t need any more stuff. What I need is to diversify. Now, what don’t I have in my portfolio? I know, property! Cue another mortgage.

Congratulations! And it’s good to be able to say I told you so 😉
When you are shot of the mortgage, your disposable income rises by the mortgage you don’t have to pay, which is even better as it’s money you don’t need to earn net. That can be good for your pension savings.

Before you actually discharge the mortgage, however, it’s worth asking whether TI’s alternative take has something to offer you. Early retirees (pre 55) in particular should ask themselves whether it makes sense to pay off the mortgage before they get hold of their pension commencement lump sump, perhaps targeting extra savings in that direction.

I did pay mine off, and don’t regret it. However, analytically, that was a bad move as it gives me an income suckout pre-retirement. If FI is your aim before 55 then the same will apply to you. What swung it for me was, as you said –

No longer will they be able to invite themselves round for a ‘chat’ if I can’t keep the payments up.

F.I. will come surprisingly quickly, now you have unshackled yourself from the mortgage millstone 😉

We had reduced our outstanding balance to about £100 in 2007. Then, exploiting the fact that it was a flexible mortgage, we put it back up above £20k, because we had a good use for the money. Now it’s back down to about £100 again, and will be paid off entirely in the next few months. It would seem that we are less emotional about these things than you are. It takes all sorts.

1. Keeping the mortgage interest free and building up an equivalent sum in ISA’s or savings account

2. Repaying the mortgage at the lender’s standard schedule and using extra savings to build up ISA’s or savings accounts

3. Overpaying the mortgage with all your savings as you go

From the evidence of the ‘strong wind from the equities market’ it sounds like 1 or 2 or somewhere in between and I’m interested where you drew the line if you care to divulge it.

We will be in a position to potentially pay off a large chunk of our mortgage next year and I’m trying to work out the best course of action. As Ermine points out, I’ll probably use my SIPP lump sum to finally kill it off but if interest rates start creeping up in the interim it would make sense to pay it off earlier.

Congrats TA for sticking it to The Man and becoming a mortgage killing bad ass.
It is a major goal of mine but has taken a step back recently as I’ve effectively borrowed back some of the overpayments on my offset to build an extension.
Justified it as being cheaper than moving, and a kind of inflation hedge where current monetary conditions meant there was no point in holding off any longer as we wanted more space anyway.

But looking forward I want to hammer the debt back down, and its always a wrestle for me between the security and certainty of clearing mortgage debt vs the tax efficiency of pension contributions.

I guess what i would be interested in is if your plan, once completed, means you effectively have no savings left whatsoever? I’ve been looking at such plans but at the moment my Equity ISA is planned as part of my pension, plus being self employed I also have an instant cash war fund. Theoretically cashing everything in i could be mortgage free in 4 years or less but cant see this is a such a good idea in many ways. I think I’ll bumble along and look longer term as much as I’d like to ‘be free’.

I was lucky enough to be able to pay off the mortgage on my first house in just six years. Never have I enjoyed writing a huge cheque so much, particularly given how savage interest rates were back in the late 80s and early 90s.

Be careful about going down the pension lump sum route – it is a sitting duck for confiscation, and there have been murmurings in the press very recently (Merryn Somerset Webb/Ros Altman) suggesting that capping the lump sum is currently under active consideration by the Treasury. Recent policy papers by think-tanks have suggested moving it away from 25% of total value to £36,000 or the point where the 40% tax rate kicks in (variable but early £40,000s).

@Tyro – Even the Lib Dems have backed down from their proposal earlier this year to cut the 25% tax-free lump sum. They’re now suggesting reducing the Life Time Allowance to £1M but leaving the tax-free cash alone — giving a limit of £250k.

Congratulations and celebrations as we say here in Cape Town. I am waiting for my turn: earmarked 1 November 2013. Do you know why, at 72, I still have to pay off a home loan? All because I did not aquire sufficient financial education along the way. Now I discuss these things with my grandson who has only started high school this year. Contrast this advice with the way I grew up: “Your income is only between you and the Receiver of Revenue Office!” Now I advise everyone to become financially literate and not just frugal.
Once again congratulations and, if there are any oldies like me out anywhere: it is never ever too late. May your Gods bless you and keep on encouraging and educating us!

The 3/4 changes to the personal pension regulations oveer the last decade or so have all have the same general provision that you could elect to stick to the old rules if you stopped making new contributions to your pension fund

Obviously this is fine if you are in your 50s, not so useful otherwise

I’ve been in one those old regimes for a number of years now and quite simply you get left behind and the future subsequent couple changes to the legislation don’t affect me

Around about 70% of the current tax relief goes to higher/addtional rate income tax payers (I think only 4m out of 30m tax payers even pay higher rate tax, there are maybe 100-200k addtional rate tax payers)

Its hardly fair is it?

Another more recent report to the one I usually link when we argue about this:

I think you might have fallen for some government FUD. Tax relief doesn’t “go” anywhere, it’s simply that people can save money for their old age via a pension without this money being subject to tax or NI on the way in.

So yes, it’s totally fair that everyone pays 0% on the way in and then their marginal rate on the way out. Why on earth would anyone want to double tax someone on this? I’m guessing the only ones in favour of this has health DB and/or public sector pensions and don’t actually have to set aside their own hard-earned money in this way.

Great progress @T.A!
When I did this a few years ago I kept £1 in the mortgage account. This way when the sands shifted and the financial landscape was such that I wanted to invest in more bricks, I could borrow at a great rate with little admin overhead, and very quickly. It might be worth considering using the cash elsewhere so long as post-tax & risk adjusted returns exceed interest, or at least consider leaving £1 in the account to keep your future options open.

@Tyro & others … I agree about pension meddling. It is now one of the reasons why I max out my ISA; this way I’ve at least some capital in my control. One of the changes that really screwed my F.I. plans was the min withdrawal age moving from 50 to 55. If it were not for that, I’d already have FI now. As it is, I need to build more capital or wait a few years more 🙁

Congrat’s TA. Perhaps not the immediate sense of delight you may have expected, but from personal experience you may well find that you experience a real sense of satisfaction at a number of points in the future – over a glass of wine; in a particularily boring meeting; listening to someone brag about the big brand new car they’ve ‘bought’ (on finance…), etc. It’s certainly a milestone, and one that warrants a feel good factor, in whatever form.

I’m also one now looking towards financial independence and will +1 on the ‘stop meddling’ point. As gadget says, they want you to plan, but make it more difficult with interferance. I’m not yet 40, so with 15-20 years to go I’d certainly appreciate some consistancy in the rules!

“I’m guessing the only ones in favour of this has health DB … pensions and don’t actually have to set aside their own hard-earned money in this way.” They too pay their hard-earned, it’s just that it never appears on their pay-slips. The employer’s contribution to a DB pension is earned by the employee; it is a deferred part of his pay.

dearieme – no it’s unfunded at worst (govt) and underfunded in most firms. The extra is made up by profits which is a huge burden on many companies which keeps current wages lower and stifles investment.

If I were living it up in the knowledge that kids were labouring away to keep me their and that they won’t get their DB pension I’d probably stick my head in the sand too.

Congrats on paying off your mortgage! And I totally agree with you that financial freedom is THE ultimate financial goal. It’s the promised land where money stops being an issue and we can enjoy life the way it was meant to be enjoyed!

@Ben: funded after the event or not, it’s part of the pay of the worker. That’s the legal position, and, mirabile dictu, that is a correct recognition of the economic truth of the matter. Similarly, the employer’s contribution to a defined contribution pension is part of the worker’s pay. Your envy of one or both of those is neither here nor there.

Loving all the attempts to logically explain and predict opportunistic government money grabbing!

For younger people trying to become mortgage free on today’s ridiculous house prices I feel their best hope is to actually increase their mortgage and put the equity down on a second property. I’m finding my house tends to make me more money than the median post-tax salary in a typical year, so if I had two of them I would eventually not need to work at all. Being in masses of debt and holding assets that are likely to go up in line with inflation also makes a lot of sense in times of financial repression.

People look at the tax on rental income and capital gains from selling a buy-to-let investment but tend to forget you can keep remortgaging and release cash tax free. That’s got to be better than tying all your money up in a pension.

I hope one day we can have this feeling and teach ourselves the discipline it requires to get there.

I however have been forced to re-think my position due to this read.

I own about a third of a london property, I continue to pay the interest and the capital and have put together a financial plan for myself and my wife in order to invest in index funds.

My plan has been to withdraw the capital were putting in however – if and when the surrounding london areas come down in price – and then rent this flat out for a sum that will pay pay capital off even after we’ve made a substantial withdrawal from it in order to purchase our main home. It all sounds logical and do-able but time changes our perceptions of what was once a good idea. The end goal being that this flat can be a very nice asset later in life – if we can manage it so that it pays itself off before then. A somewhat risky strategy!

“People look at the tax on rental income and capital gains from selling a buy-to-let investment but tend to forget you can keep remortgaging and release cash tax free.”

It may not happen this year, next year, or even the year after, but as surely as night follows day, interest rates will rise at some point in the future. When this happens, having increased debt levels while rates were low may not look like such a good idea. Yes, the property used as security could be sold to repay the debts when repayments rise but at that point it will become obvious that capital gains tax can only be deferred, not avoided.

Borrowing in order to invest can work out well if the long term return on the investments is higher than the cost of borrowing, but borrowing to “release cash” from existing investments is more risky and could well end in tears eventually.

Congrats TA (and Ms TA)! Have you blogged about your Financial Independence plan? I’m mortgage free, so that would be my next step too. Not planning to defer any happiness until then, though. Financial goals require planning and patience, but happiness is something that can only be experienced in the here and now…

@ All – thanks so much for the notes of congratulation and for sharing your individual stories. May I return hearty congratulations to all who are now truly home owners and, to those who are still on the road: keep going! It will be worth it.

Sorry for the late reply, but things have been manic at work. (C’mon financial independence!)

@ rjack – I’ve never said lol before but that almost deserves one.

@ Ermine – Cheers! I’ll be coming back to that topic very shortly.

@ WestCountry – I have an interest only mortgage, so went for option 1. I’ve also been lucky enough to have a lifetime tracker since 2008, so I really was handed a historic opportunity. That type of mortgage was pulled from the market while my application form was in the post.
It took 6 years to nail it once we started trying to pay it off. However, the sad truth and the danger with this kind of mortgage is we only paid the interest for the 8 years before that. That was before I became a born-again FI-er.

@ Semi – heh heh. Cheers. Never been a bad ass before. You, West Country, Ermine, Ric and Geo all put your fingers on an important question which I’ll return to in my next post. Things are not as straightforward as they seem. However, a number of wise old birds (wiser and older than me) have said they’ve never regretted paying off their mortgage.

@ Georgina – Congratulations on reaching the end of your journey. Your grandson is a lucky guy. I woke up relatively late (in my 30s) and am lucky that the internet was mature enough by then to put me in touch with an almost bottomless well of good advice and inspirational people.

@ Pea & Gravy – Go, go, go!

@ AlwaysLearnin – Ha ha – that “boring meeting” comment certainly struck a chord. I can just imagine the dreamy far away look I might get as my mind drifts away to a happier place.

@ Ben – an excellent point. Hopefully the financial pendulum will swing for you in some other way. For example, as a post-war baby boomer my father had a much tougher childhood than I but arguably has benefitted from a more favourable property market and pension benefits that I will never know. Whereas, I’m surfing on a wave of productivity and health advances that his generation laid the foundation for.

@ JJ – that was me 6 years ago. That jealousy you feel, that’s the intensity and desire that will carry you to your goal.

Because I’m human. Simple as that. I agree with all the rational arguments you make and that’s a comfort as far as it goes. But it’s not a rational thing. We’re emotionally wired to dislike loss. Or at least I am.

It’s only a loss if you’re a forced seller, just as with houses. Those with the requisite emotional detachment just see the froth blown off and find themselves buying again, and they are buying off those driven by visceral panic.

I’ve come to the conclusion that we are born the way we are born when it comes to this sort of thing. Some of us just aren’t so bothered, and some of us reel. It doesn’t mean one is better than the other – I’m more Spock turned Sparrow turned Genghis Khan in a crash but I could probably do with a bit more emotion in my decision-making when it comes to the bigger picture, I don’t mind admitting!

My emotional compass sometimes goes faulty and forgets to remind me what it’s all about (i.e. For private investors generally NOT maximizing risk adjusted returns. Rather, living the life we want to…)

The key is to know thyself, and not push too hard. Feels to me like T.A. has his balance right.

You’re lucky you’re so cool. However, I think it’s all too easy for a site like this to be dominated by Spocks logically rationalising away what cannot be rationalised i.e. how people feel when the world panics.

Risky investing is just that – it comes with risks and one of them can be psychological discomfort and even distress. Even if you think you know your risk tolerance – it can shift.

It’s worth acknowledging that when risky courses are advocated.

I actually think my acquired knowledge of the stock market helps keeps my flighty reptilian brain in check; we can learn new behaviours, but as The Investor suggests, some have a god-given head start.

Would this “trick” help; to focus on the dividend rather that Mr Market’s current appraisal of worth. The dividend is (hopefully) more stable, so more reassuring when one is attacked by humanness. Of course, historically speaking some (including to a certain degree myself) have been caught out by the likes of Lloyd’s after they bailed out Halifax without doing any due diligence, a couple of years ago. But then that is why we keep diverse portfolios rather than just a few holdings each!

It was fun paying off the mortgage – the entire journey. As long as you make every dollar point in that direction, it will be easy to achieve, and much more valuable to your sense of well being than anything else that you might want to spend your money on. Having a house that is 100% yours gives you a huge boost to your financial self confidence, and it is well worth focusing all your financial power on. Debt tends to spread like cancer. The less of it that you have in your life the simpler your financial life is, and the clearer you will be on all financial decisions. Don’t ever lose your patience, just be patient a bit longer, and you’ll get there.

I recently inherited some money, which meant I could pay off 90% of the mortgage. It’s a flexible one – so if I ever need to borrow back, that facility still remains. I’m paying the rest off at a measly £100 a month.

I called my mortgage provider, with the aim of paying them £75K. The nice lady at the other end of the phone said – “just give me your debit card number, expiry date and security code” Almost immediately she said that the funds had been transferred – I was gobsmacked. £75k on a debit card over the phone.

I set myself a goal back in 2006 to pay off the mortgage by 2011. By 2011 I had actually saved enough to pay it off (£140k). I did this by pure obsession, saving every penny I could, cutting bills, and changing jobs a few times until the salary and bonuses were sufficient. There’s nothing like this goal to motivate you career wise!

But when I actually had the money sitting in the bank, I decided not to pay off the mortgage after all. True financial freedom meant an ultimate goal of £4m for me. Instead I used the funds to put a deposit on a but to let, and invested some in stocks, shares, and commodities. I hope it was a wise decision.